Property Weekly Review: 12th – 18th January 2009

• Property sector ended slightly lower
The property sector ended slightly lower last week after posting significant gains in recent weeks. With the exception of SP Setia which ended the week unchanged, all stocks under coverage were slightly lower. On notable shareholding filings, there were still plenty of activities on SP Setia. Permodalan Nasional Bhd (including Skim Amanah Saham Bumiputra) acquired another 5.50m shares while Employees Provident Fund (EPF) disposed of 1.41m shares. On the other hand, EPF added 0.36m and 0.22m shares in Sunrise and YNH Property respectively. Controlling shareholders of YNH Property, Dato’ Dr. Yu Kuan Chon, and Glomac, Datuk Richard Fong, continued to show confidence in their companies by buying another 0.07m and 0.02m shares respectively.
• Quiet week
Nothing much happened in the property sector last week as December and January tend to see lower level of activities due to the many festive holidays. During the week, MBM Resources entered into a joint venture which marked its foray into property development while Berjaya Corporation revived their “Berjaya Central Park” project by teaming up with Ritz-Carlton to launch luxury serviced apartments. Metro Kajang is another developer which was reported last week to be launching 3 new projects in 2009 with a combined gross development value of RM1.6bn. While developers have largely expressed their confidence in the property market, there was still little action on the ground and we expect this to remain so in the first quarter as buyers remain largely on the sidelines.
• Maintain NEUTRAL
The recent rise in property stock share prices seem to have fizzled out, which is not surprising given the lack of near term catalysts. Property companies are still expected to turn in decent earnings growth in 2009, and to certain extent 2010, due to large unbilled sales brought forward from last 2 years. Having said that, we will be monitoring the launches and sales activities very closely over the next few months. The sales activities in the current year will determine whether property companies will see sustained earnings by 2011.
Our neutral call on the sector is maintained and we favour stocks such as Sunway City in current times given their more stable property investment earnings as opposed to pure property developers.

Share price performance

The property sector ended slightly lower last week after posting significant gains in recent weeks. With the exception of SP Setia which ended the week unchanged, all stocks under coverage were slightly lower.
On notable shareholding filings, there were still plenty of activities on SP Setia. Permodalan Nasional Bhd (including Skim Amanah Saham Bumiputra) acquired another 5.50m shares while Employees Provident Fund (EPF) disposed of 1.41m shares. On the other hand, EPF added 0.36m and 0.22m shares in Sunrise and YNH Property respectively. Controlling shareholders of YNH Property, Dato’ Dr. Yu Kuan Chon and Glomac, Datuk Richard Fong continued to show confidence in their companies by buying another 0.07m and 0.02m shares respectively.
On share buy back, YNH Property bought back another 0.16m shares from the market and currently has 22.81m shares held in treasury.

Notable property news
– MBM Resources Bhd has kicked off its foray into property development by entering a joint venture with its 86%-owned subsidiary Federal Auto Holdings Bhd (FAHB) to develop the latter’s property in Kuala Lumpur. The joint venture, through another 70%-owned subsidiary Inai Benua Sdn Bhd, will develop the property into a 26-storey highrise commercial office block with showrooms.
– Berjaya Corporation Bhd (BCorp) has teamed up with The Ritz-Carlton Hotel Company to develop luxury serviced apartments with an estimated gross development value (GDV) of RM2bn. The site of the development is formerly BCorp’s “Berjaya Central Park”. BCorp group chairman and chief executive officer Tan Sri Vincent Tan said the group expected to sell at least half the 300 units on offer and was prepared to offer the remaining portion for rental or for sale at a better time.
– Metro Kajang Holdings Bhd plans to launch at least three new projects with a GDV of RM1.6bn this year. Group managing director Datuk Eddy Chen Lok Loi said the company will focus on the medium-to-high-end properties that are resilient even in recession. The company is the biggest property developer in Kajang and Semenyih and is keen to strengthen its position.

Property Weekly Review: 5th – 11th January 2009

• Property sector outperformed market
The property sector has outperformed the KLCI last week, led by a 12.7% gain in property sector bellwether, SP Setia. On notable shareholding filings, Permodalan Nasional Bhd acquired another 0.09m shares in SP Setia while Dato’ Dr. Yu Kuan Chon added another 0.55m shares in YNH Property.
• Downgrade SP Setia to sell
The price movement of SP Setia surprised us as nothing has changed fundamentally since we initiated coverage in Nov 2008. This led to our recommendation last week to take profit on SP Setia as share price has overrun its fundamentals. We also recommended investors to switch to Sunrise for a pure property exposure at undemanding valuation while more risk-averse investors should look at Sunway City due to its more stable property investment earnings.
• In the news
Nothing much happened in the property sector last week. Notable news includes Bank Rakyat building its new headquarters along Jalan Travers which will add another 1.8m square feet of office space when completed in 2011. There was still news on expansion activities as Mutiara Goodyear acquired a 3.52ha land in Bukit Gambir, Penang for RM15.01m while Tan Sri Quek Leng Chan has reportedly acquired a 3% stake in InterContinental Hotels Group Plc for £51m.
• Maintain NEUTRAL
Although property stocks have corrected significantly in recent weeks, there is still lack of near-term catalyst. Property buyers are on the sidelines while developers are cautious in launching new projects. As such, we maintain our neutral call and favour stocks such as Sunway City which has more stable property investment earnings.

Share price performance

The property sector has outperformed the KLCI last week, led by a 12.7% gain in property sector bellwether SP Setia. The price movement of SP Setia surprised us as nothing has changed fundamentally since we initiated coverage in Nov 2008. This led to our recommendation last week to take profit on SP Setia as share price has overrun its fundamental. We also recommended investors to switch to Sunrise for a pure property exposure at undemanding valuation while more risk-adverse investors should look at Sunway City due to its more stable property investment earnings. On notable shareholding filings, Permodalan Nasional Bhd acquired another 0.09m shares in SP Setia while Dato’ Dr. Yu Kuan Chon added another 0.55m shares in YNH Property.

Notable property news
– Bank Kerjasama Rakyat Malaysia Bhd’s is building a new RM460m headquarters, called the Bank Rakyat Twin Towers, to improve the bank’s efficiency when completed in 2011. The Bank Rakyat Twin Towers, one of 32 storeys and the other 38 storeys, will be built on a 3.78-acre piece of land located at Jalan Travers, Kuala Lumpur. According to the bank’s group managing director, Datuk Kamaruzaman Che Mat, the bank had a good deal when it bought the land for RM43m in 2006. At that time, the conservative market price was about RM65m. The construction cost of the twin towers, with a builtup area of 1.8m square feet, was estimated at RM460m, he said.
– Affin-I Goodyear Sdn Bhd (AIGyr), a Mutiara Goodyear Development Bhd (MGD MK, not rated) unit, has signed a sale and purchase agreement with Affin Islamic Bank Bhd for the acquisition of 3.52ha in Bukit Gambir, Penang, for RM15.01m. AIGyr is a joint venture between Mutiara Goodyear and Affin Islamic Bank Bhd.

– Tan Sri Quek Leng Chan has reportedly taken a 3% stake in InterContinental Hotels Group Plc. Quek made the investment, worth £51m (US$74m), through his Hong Leong Group Malaysia.